The Bangladesh Petroleum Corporation (BPC) has sought around $2 billion in foreign currency loan from the International Islamic Trade Finance Corporation (ITFC) amid a prolonged dollar crisis that is delaying its petroleum oil import, eventually fuelling the energy crisis in the country.
The requested loan amount is more than double the $850 million taken last fiscal year, according to the BPC.
The import costs of the BPC doubled year-on-year in FY22 – when the import volume was even comparatively lower amid rising oil prices in the global market.
The high import costs aggravated the dollar crisis in the local market, discouraging state-owned banks to open letters of credit (LCs) against petroleum imports.
The BPC is still supplying oil to power producers as per their demand, but it is now in fear of running out of its stock soon if the delay in opening LC prolongs.
The country has already been experiencing disruptions in power supply owing to gas shortage.
The BPC spent $967 million on importing 14.67 lakh tonnes of crude oil in FY22, while the amount was $608 million for 15 lakh tonnes in the preceding fiscal year.
So, the corporation spent an additional $359 million on importing even a lesser amount of crude oil in the last fiscal year.
The BPC spent $4.6 billion on importing 52 lakh tonnes of refined oil in the last fiscal year and the cost was less than $2 billion for importing 42 lakh tonnes in FY21.
The volume of refined oil import increased by 24% in FY22 with cost escalating by 142%, according to BPC data.
The total LC settlement value of petroleum and petroleum products doubled to $6.67 billion in July-April period of FY22 from $3.3 billion in the same period of FY21, according to the Bangladesh Bank data.
The high import cost intensified the dollar crisis in the local market causing a delay in payments to suppliers risking banks being blacklisted.
Amid this situation, the BPC sought a foreign loan from the International Islamic Trade Finance Corporation, a sister concern of Islamic Development Bank (IDB), to reduce pressure on the local dollar market.
The BPC got approval of a $1400 million loan from the lender but it is now negotiating for another $500 million because of an acute dollar crisis in banks, said Moni Lal Das, general manager (Finance) at the BPC.
State-owned banks are reluctant to open LCs and are also delaying payments. They are making LC payments in installments which is deteriorating relations with suppliers, he noted.
If the central bank does not supply adequate dollars to banks and instruct them to make timely payments against petroleum imports, the BPC will face a supply shortage, he said.
Delays in LC payments to foreign banks put banks at risk of being blacklisted, said another senior executive of the BPC.
As a result, state-owned banks are not interested in opening a new LC, which is leading to an energy crisis, he added.
Banks are getting dollar supply from the Bangladesh Bank but the amount is not adequate, said a senior executive of Agrani Bank that is involved in petroleum imports on behalf of the government.
As a result, import payments to suppliers are being delayed, he also said.
State banks opened government LCs only after getting dollars from the Bangladesh Bank as the market rate is higher than the central bank rate, he added.
Currently, the inter-bank exchange rate is Tk93.45 per dollar, while the market rate is above Tk98.
The country's central bank sold $7.62 billion from the foreign exchange reserves in the just-concluded fiscal 2021-22 to slow down the downward slide of the weakening taka against dollar while it bought $7.7 billion in the previous fiscal year, according to the latest monetary policy statement announced this week for the current fiscal year.
The dollar-selling spree eroded foreign exchange reserves to $41.9 billion as of 28 June this year compared to $46.4 billion at the end of June 2021.
The Bangladesh Bank intervened in the foreign exchange market throughout the last fiscal year, causing the highest depreciation of taka against the dollar among its Asian peers.
Bangladesh experienced 9.2% currency depreciation against the dollar during the last fiscal year when Malaysian currency lost value by 5.6%, India's by 4.8%, China's 3.5%, and Indonesia's by 2%, according to the Bangladesh Bank data.
The exchange rate of the dollar was Tk84.81 at the end of June last year, which surged to Tk93.45 at the end of this June, according to Bangladesh Bank data.